#173 Lessons From Willis Johnson (Copart)
What I learned from reading “Junk to Gold: From Salvage to the World’s Largest Online Auto Auction” by Willis Johnson.
Today’s Chapter is based on the book “Junk to Gold: From Salvage to the World’s Largest Online Auto Auction” by Willis Johnson.
Willis J. Johnson (born 1947) is an American billionaire businessman best known as the founder of Copart, a global leader in online auctions for salvage and totaled vehicles. A Vietnam War veteran who earned a Purple Heart, he later took Copart public in 1994, pioneered online car auctions in the late 1990s, and served as CEO until 2010 before stepping back into an executive chairman role and other ventures.
Here’s what I learned:
Hard Work
“I’m a greater believer in luck, and I find the harder I work the more I have of it.”
— Thomas Jefferson
Willis Johnson, the founder of Copart had a relentless work ethic which he inherited from his father who had a life where nothing came easy and opportunities had to be chased. Growing up, Johnson watched his dad work extreme hours and seize every chances he had, whether it was through metal scrapping or finding bargains at auctions. As Johnson writes, “When I was growing up, my dad would often work fifteen hours a day, seven days a week. It was always that way for my dad. When he was a kid, he would fill a small wagon with ice and bottles of Coke. He’d take that wagon to construction sites and sell cold drinks to the workers. He learned the value of hard work, and it gave him a taste for starting up businesses that could help support the family.”
Similarly, the children in the Johnson family were quickly put to work when the family moved to a family ranch in Arkansas. This experience at the farm built Johnson’s grit that he later applied in his career. Throughout his father’s businesses, he also noticed that the world wasn’t always fair. As he explains, “While hard work became second nature, I learned it wasn’t always a guarantee of success, and people aren’t always treated equally for equal work. The world was unfair, and this bothered me.”
Nonetheless, his father’s approach taught him that success can be built on the accumulation of small disciplined actions rather than a single stroke of luck. It allowed Johnson to build a character of resourcefulness in spotting value where others saw scrap, whether it was by scanning newspapers for deals or learning from auctions. Johnson didn’t just work hard, he worked smart.
“My dad was the smartest man I ever knew in business, and I soaked up everything I could from him. We not only shared the same name but also a belief that nothing was impossible with hard work and determination.”
— Willis Johnson
Furthermore, Willis Johnson also learned from his father to be relentless in terms of frugality. His father once said, “Take care of your pennies and your dollars will take care of themselves. As such, it isn’t surprising to know that Willis Johnson was a very hands-on owner throughout his different business ventures. As a matter of fact, his approach to business remained grounded even after he became a wealthy executive. He was never a leader who stood on a pedestal and was always working in the yard alongside his employees.
For example, in the early days of Mather, he worked alongside his employees, dismantling cars and was known for having grease under his nails. He believed that if he wouldn’t do a job, he couldn’t expect anyone else to do it either. This willingness to get dirty was often the competitive advantage that allowed him to see value where others saw only scrap. At auctions, he and his father were often the only ones who truly knew the value of what they were bidding on because they had done the manual homework that others found too beneath them.
This reminds me of what we learned from Elon Musk who believed that creating a culture of excellence requires more than just hiring well. It also requires leaders who are willing to lead by example and who are willing to get their hands dirty. Elon Musk is often seen sleeping on factory floors and working alongside his teams during crises. He understood that his employees would work harder if they saw him working alongside of them. He mentions, “Think about war. Do you want the general in some ivory tower or on the front lines? The troops fight harder if they see the general on the front lines. Nobody bleeds for the prince in the palace. Get out there on the front line. Show them that you care and that you’re not in some plush office somewhere.”
Similarly, Musk believed in removing any barriers that may separate senior executives from employees. As a matter of fact, he expects his managers to have hands-on experience in the work they oversee. For example, software managers must be able to code and solar roof managers must be able to install roofs. If you cannot do the work yourself, you have no business telling others how to do it. He elaborates that, “All technical managers must have hands- on experience. For example, managers of software teams must spend at least 20 percent of their time coding. Solar roof managers must spend time on the roofs doing installations. Otherwise, they are like a cavalry leader who can’t ride a horse or a general who can’t use a sword.”
“When the team is being asked to work super hard, I have to be right there with them and they have to see it. If I fall asleep in the middle of the factory floor at four in the morning and wake up four hours later, they see that. They are like, “If the CEO is willing to take that level of pain, I can do it too.””
— Elon Musk
Integrity
“If it is not right do not do it; if it is not true do not say it.”
— Marcus Aurelius
Willis Johnson’s father also helped him cultivate a sense of integrity. For him, deals were either right or they weren’t and cheating, even over some pennies, eroded trust permanently. As such, Johnson, following the steps of his father’s frugal, built a reputation for standing by his commitments and always walked away from questionable opportunities. Johnson writes, “Both my dad and I also built reputations in the business world of always standing by our word and never doing business if a deal felt wrong. We both walked away from opportunities that may have helped our businesses but would have crossed a moral or ethical line. To us, the business world was black and white, and a deal you aren’t sure about isn’t really a deal at all.”
As such, Johnson believed in the importance of never breaking his words, even at personal cost. He explains that “I was raised to believe that cheating is the same whether you are taking ten cents or $10,000. And if you could do it once, there was a good chance you would do it again.” This principle guided everything from how Johnson treated employees to how he dealt with customers.
“I told myself I would never do that, even if it meant I would lose money. I never promised something to someone that I didn’t do, and I never made promises I couldn’t keep. My word is gold. You don’t have to get me to sign something for me to take my commitment seriously.”
— Willis Johnson
By consequence, it is not surprising to learn that he paid above average wages and benefits to his employees in order to retain talents but to also build loyalty among his staff. Johnson explains that, “We learned it wasn’t just enough to treat your employees nice, give them good benefits, and hope they got it. That wasn’t enough to keep the unions out. We treated the employee nice, gave them as many benefits as we could, and treated them like we didn’t want them to leave—because we didn’t. But we didn’t tell them we loved them; we didn’t show them how much they meant to the company.”
When Johnson’s son-in-law Jay joined the company, he understood right away that one of the key reasons for Copart’s success was due to its corporate culture. The company believed in the philosophy that if you take care of your people, they will take care of the company. In fact, the company’s ethos was eventually distilled into a set of values whose first letters spelled out the company’s name COPART: Committed, Ownership, Profitability, Adaptable, Relationships, and Trust.
“Copart was going to be a company that didn’t just hire on skill sets or IQ (intelligent quotient); it was going to hire based on attitude—EQ (emotional quotient). We were going to be a company in which people liked their coworkers and had fun at what they did. If that happens, we knew they would probably be more efficient and productive and capable of delivering legendary service.”
— Willis Johnson
Furthermore, Copart’s success can also be explained by the way the company treated their customers, or what they called legendary services which became the standard. They believed in providing services that would leave customers saying “Wow, how did they do that?”.
Copart’s focus on treating their employees and their customers fairly reminds me of the importance of hiring employees who have integrity. As Warren Buffett once said, “Intelligence, energy, and integrity. And if they don’t have the last one, don’t even bother with the first two. I tell them, ‘Everyone here has the intelligence and energy—you wouldn’t be here otherwise. But the integrity is up to you. You weren’t born with it, you can’t learn it in school.” Here’s what Jacobs has to say about integrity: “I’ve learned three important lessons about integrity over the course of my career. First, if someone’s willing to lie about small things, they’re usually willing to lie about big things. It’s a lot of work to communicate with someone you don’t trust to speak truthfully, where you have to constantly wonder whether they’re lying, and why. And more critically, trustworthy employees are leadership’s eys and ears in business operations. Dishonest employees blind management to the reality of what’s going on. The second thing I’ve learned is that, sooner or later, liars get caught. That’s why I believe honest people are more successful in the long term than dishonest people. I’m chasing success on a massive scale, so I can’t afford to have liars on the team. They pose an existential threat to the entire company, and the team can sense that, even if they don’t know anything specific. Honest employees make it easier for everyone to relax. And third, honest people don’t have to tell you how honest they are. Instead, they show integrity through their actions. Most reputations for integrity come from the cumulative effect of someone doing what they say they’ll do, and being straightforward in how they speak. These are the kinds of cues we look for as someone moves through the hiring process.”
Similarly, Brad Jacobs believes in four non-negotiable traits when hiring: intelligence, hunger, integrity and collegiality. Miss any one of these characteristics and the candidate is out. As he once said, “Make your hiring choices as perfect as they can be because there are few mistakes costlier than hiring the wrong person.”
“While there’s little about these three leaders that seems to connect them on the surface, they’re nearly identical in possessing the four qualities I seek in every hire: intelligence, hunger, integrity, and collegiality. If a candidate is deficient in any one of these four, that’s a risk I don’t take. If I find someone who scores high in all four qualities, and has the skills for the role, I snap them up.”
— Brad Jacobs
Specializing
“Ignore the conventional wisdom. If everybody else is doing it one way, there’s a good chance you can find your niche by going in exactly the opposite direction.”
— Sam Walton
Willis Johnson didn’t succeed in business by doing what everyone else did. He didn’t just participate in the auto dismantling industry, he reinvented it by looking at the business through different lens.
One of his most significant innovations was the realization that he could make more money by dismantling parts and selling them individually than to sell them as a whole. While others forced customers to buy a used engine bundled with all its attached parts, Johnson dismantled them and only sold to the customers what they really wanted. He writes, “I would sell them just the motor, undressed, for $275—a deal if that’s all they needed. Then I’d sell the other parts separately—the distributor for $50, the alternator for $25, the carburetor for $100. By the time I was done, I could get $700 for the same parts sold separately that were sold together by my competitor for $400. And the customer was happier.”
Willis Johnson also understood the value of finding a niche that others ignored. When he was facing stiff competition, he decided to specialize in auto parts that other dismantlers did not want to carry, such as parts from Chrysler, Dodge and Plymouth, due to their unpopularity. While his competitors were chasing popular components from General Motors and Ford, they were more than willing to sell their slow-moving inventory to Johnson, even at a discounted price. The results were immediately amazing. Johnson mentions that “Before we specialized, Curtis and I were running between $3,500 and $5,000 worth of parts a month at Mather. After specializing, we were running around $3,500 worth of parts a day.”
“At the time Chrysler, Dodge, and Plymouth were not cars dismantlers wanted to have because they weren’t hot-selling items. So we made a decision to specialize in Chrysler, Dodge, and Plymouth. All the other dismantlers thought I was crazy. But they were more than willing to sell us their Chrysler parts that weren’t moving and send business our way.”
— Willis Johnson
Finally, Johnson was never afraid to invest into technology, despite being from a generation that did not grow up with computers. With the help of his son-in-law, Jay, he was able to embrace the internet before most of the industry even understood what it was. They developed a system that allowed to move all of Copart’s auctions entirely online and expanded their buyer base from local yards to bidders internationally like Mexico and Canada. As Johnson writes, “Copart was no longer just a salvage company; it was also a technology company.”
This was extremely controversial as customers and employees were skeptical of online auctions. In fact, “All the buyers told Jay it was a dumb idea; no one would bid on a car they didn’t look at first, they said. Jay told them, “I’m not asking you to not see the car. I’m asking you to come look at the car the day before the sale, and for thirty-five dollars you can submit a bid on our website and not have to stand in the auction all day or pay a contract buyer one hundred and fifty dollars to stand there for you.” Once buyers understood the concept, it took off, and Copart had more than $ 1 million in online sales the first quarter.”
The success of Copart and Willis Johnson through specializing and finding a niche reminds me of the Pareto Principle we have learned from Tom Monaghan, the founder of Domino’s who believed in the two following core business tenets:
Prepare pizzas with the freshest ingredients possible
Deliver pizzas to the customers within thirty minutes
To make sure to run a profitable business while still satisfying its promises to the customers, Tom Monaghan used the Pareto Principle, also known as the 80/20 rule. This principle explains that 80% of outcomes are the result of 20% of inputs. In Domino’s case, Monaghan quickly realized that even though he sold three different sizes of pizzas 80% of his sales came from 12-inches pizzas. Similarly, 90% of beverage sold were either Coke or Pepsi. He explains “In Ypsilanti, at least 80 percent of the orders from dorms were for twelve-inch pizzas. So why have any other size?“
This was a major revelation and breakthrough in Domino’s Pizza history. By doing so, the company was able to leverage its profits even further. It may seems counter intuitive that simplifying a business may increase its revenue, but here’s how Monaghan explains it:
“The main argument for having only twelve-inch pizzas was faster service. But quality would be improved, too. A pizza maker has to learn how to make each size pie. The twelve-incher is easier and larger ones are much harder.
There would be fewer mistakes too both in taking orders and boxing them. With three sizes of pies and just two inches difference between them, it sometimes happened during a rush that a worker would ruin a large pie by trying to jam it into a medium size box.
Then there were the saving we would make in purchasing. Having one size would cut our box inventory requirements by two-thirds.”
— Tom Monaghan
Beyond the Book
Read "Learning From Copart’s Willis Johnson" by Investment Masters Class
Read "Warren Buffett: The Three Things I Look For in a Person" by Farnam Street
Read "Leverage: Gaining Disproportionate Strength" by Farnam Street
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